Legal & General has revealed that the Bank of Mum and Dad (BoMaD) has spent an average £6,000 more this year than in 2018 to help loved ones onto the housing ladder.
The new report from the insurer and Cebr shows that, amidst a reduction in transaction volumes across the UK housing market, BoMaD will fund nearly 20% fewer property purchases than in 2018.
However, BoMaD lenders will be more generous this year than ever before, as the average contribution increases to £24,100 – more than £6,000 more than the average contribution last year of £18,000. This rise is double the average UK house price increase of £3,000 in the year to March 2019.
The jump in BoMaD loan sizes has increased total lending for the Bank of Mum and Dad by 10% this year – up to £6.3bn from £5.7bn in 2018. As a result, BoMaD is now the 11th largest mortgage lender in the UK.
Despite the reduction in transaction volumes, BoMaD will still continue to support thousands of buyers across the country in 2019 – involved in more than a quarter of a million (259,400) property purchases. This is down from 316,600 transactions last year, but it still amounts to nearly one in five (19%) transactions in the UK mortgage market. In total, BoMaD will help buyers to purchase property worth nearly £70bn this year.
In some parts of the UK, there has been an even bigger rise in contributions from family or friends. In the North West, the average BoMaD ‘loan’ has nearly doubled from £12,900 to more than £24,000, while the South West saw the average contribution rise by over £10,000 to £29,700.
L&G said this shift in loan size could be because BoMaD lenders are supporting family and friends to purchase larger properties. Three-bedroom houses or flats were the most commonly purchased properties in 2019 (44%), and well over a third (38%) have helped family or friends to buy a two-bedroom property. 15% of lenders were even helping loved ones to purchase properties with four or more bedrooms.
Millennials (those aged 35 and under) continue to rely on mum and dad the most, with 62% needing financial support from their parents or other family members and friends. However, BoMaD is helping more than just young first-time buyers. The findings from Legal & General show that more than a fifth (22%) of people aged 45-54 have received financial assistance from BoMaD to purchase their latest property. Around 7% of over-55s have also received help from family or friends to buy their most recent home. This support for older buyers is expected to double, with 14% of Britain’s over-55s expecting assistance from BoMaD for a future house purchase.
Nigel Wilson, group chief executive at Legal & General, said: “The Bank of Mum and Dad continues to be the ‘iceberg’ mortgage lender beneath the surface of our housing market – all but invisible yet exerting a massive influence, funding purchases across the country and helping people to defy the economics of affordability and realise their housing dreams. This year, parents or grandparents, family or friends are set to lend thousands more to fund nearly one in five house purchases.
“The Bank of Mum and Dad is a symptom of Britain’s broken housing market and it goes far beyond millennials relying on their parents as more older borrowers look to family and friends for financial support. Our reliance on ‘BoMaD’ funding is an increasingly skewed facet of the UK housing market. It’s dependency, not generosity. It’s is socially divisive and it’s creating a ‘locked out’ generation of first-time buyers who aren’t lucky enough to benefit from this kind help. It’s also almost certainly eroding older people’s finances when they need it to fund care and retirement – parents, grandparents, even friends are digging ever-deeper into their savings and pensions.
“Real action is needed to deliver thousands more new and affordable homes to change the market for good, across a range of tenures. At Legal & General we are playing our part, working to bring positive change by investing in towns and cities throughout the country. Delivering the jobs, infrastructure and homes our thriving communities need.”
Parents are expected to make the biggest contribution to family members in 2019 and will be responsible for £4.4bn of lending, while grandparents will lend £657m. Other family members and friends will help more than 51,000 buyers by lending a staggering £1.2bn to help loved ones buy a home. Most BoMaD lenders are using cash savings (53%), but this year unlocking housing wealth through equity release has jumped to become the third largest source of funds (16%).
Legal & General’s research also shows that the Bank of Mum and Dad’s role is set to grow even further. More than a third (35%) of prospective buyers who are planning to purchase a home in the next five years expect to rely on financial support from their family.
